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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 30(a) OF THE
INVESTMENT COMPANY ACT OF 1940
AND SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 30(a) OF THE INVESTMENT
COMPANY ACT OF 1940 AND SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------------------
For quarter ended Commission file number 2-23772
--------------- -------
IDS Certificate Company
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-6009975
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IDS Tower 10, Minneapolis, Minnesota 55440
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 671-3131
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 13, 1997
150,000 Common shares
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Registrant is a wholly owned subsidiary of American Express
Financial Corporation, which is a wholly owned subsidiary of
American Express Company, and Registrant meets the conditions set
forth in General Instruction H(1) (a) and (b) of Form 10-Q and is
therefore filing this form with the reduced disclosure format.
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FORM 10-Q
IDS CERTIFICATE COMPANY
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
The information furnished reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for these interim periods.
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
-------------
ASSETS March 31, December 31,
------ 1997 1996
(Unaudited)
-------------- --------------
($ Thousands)
<S> <C> <C>
Qualified Assets:
Cash and cash equivalents $83,206 $111,331
Investments in unaffiliated issuers (note 1) 3,443,242 3,339,095
Receivables 40,505 44,667
Investments in and advances to affiliates 6,509 6,444
Other 34,640 36,164
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Total qualified assets 3,608,102 3,537,701
Other assets
Other 25,255 25,533
Deferred federal income taxes 1,981 -
---------- ----------
Total assets $3,635,338 $3,563,234
========== ==========
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY March 31, December 31,
------------------------------------ 1997 1996
(Unaudited)
-------------- --------------
($ Thousands)
<S> <C> <C>
Liabilities:
Certificate reserves $3,312,832 $3,283,191
Accounts payable and accrued liabilities 138,485 77,396
Deferred federal income taxes - 8,097
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Total liabilities 3,451,317 3,368,684
---------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 143,844 143,844
Retained earnings 41,805 34,767
Unrealized holding (losses) gains on
investment securities - net (3,128) 14,439
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Total stockholder's equity 184,021 194,550
---------- ----------
Total liabilities and
stockholder's equity $3,635,338 $3,563,234
========== ==========
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended
-----------------------------
March 31, 1997 March 31, 1996
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($ Thousands)
<S> <C> <C>
Investment income $61,536 $67,382
Investment expenses 15,819 16,635
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Net investment income before provision
for certificate reserves and income tax benefit 45,717 50,747
Net provision for certificate reserves 39,950 49,312
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Net investment income before income tax benefit 5,767 1,435
Income tax benefit 1,151 2,659
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Net investment income 6,918 4,094
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Realized gain (loss) on investments - net 85 (3,173)
Income tax benefit (expense) (30) 1,111
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Net realized gain (loss) on investments 55 (2,062)
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Net income - wholly owned subsidiary 65 67
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Net income $7,038 $2,099
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See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Three Months Ended
-----------------------------
March 31, 1997 March 31, 1996
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $7,038 $2,099
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (65) (67)
Provision for certificate reserves 39,950 49,312
Interest income added to certificate loans (350) (432)
Amortization of premium/discount - net 3,483 3,733
Net (gain) loss on investments (85) 3,173
Decrease in dividends and interest receivable 3,509 6,328
Decrease in deferred distribution fees 771 766
Increase in other assets (496) (4,230)
(Decrease) increase in deferred federal income taxes (618) 213
Increase (decrease) in other liabilities 1,765 (2,278)
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Net cash provided by operating activities 54,902 58,617
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Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 8,098 75,455
Available-for-sale securities 104,618 157,253
Other investments 10,268 6,661
Sale of investments:
Held-to-maturity securities 7,009 314
Available-for-sale securities 98,521 132,965
Certificate loan payments 1,372 1,829
Purchase of investments:
Held-to-maturity securities (4,565) (8,845)
Available-for-sale securities (402,014) (199,644)
Other investments (14,954) (2,208)
Certificate loan fundings (1,324) (1,182)
-------- --------
Net cash (used in) provided by investing activities ($192,971) $162,598
-------- --------
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Three Months Ended
-----------------------------
March 31, 1997 March 31, 1996
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($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Payments from certificate owners $291,816 $246,068
Proceeds from reverse repurchase agreements 120,000 -
Certificate maturities and cash surrenders (301,872) (285,737)
Dividend paid - (10,000)
-------- --------
Net cash provided by (used in) financing activities 109,944 (49,669)
-------- --------
Net (Decrease) Increase In Cash and Cash Equivalents (28,125) 171,546
Cash and Cash Equivalents Beginning of Period 111,331 56,873
-------- --------
Cash and Cash Equivalents End of Period $83,206 $228,419
======== ========
Supplemental Disclosures:
Cash (paid) received for income taxes ($1,747) $335
Certificate maturities and surrenders through loan
reductions $2,066 $2,928
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
- ----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE><CAPTION>
March 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Held-to-maturity securities........................... $852,863 $863,921
Available-for-sale securities......................... 2,323,852 2,212,968
First mortgage loans on real estate................... 224,782 218,697
Certificate loans - secured by certificate reserves... 41,745 43,509
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Total $3,443,242 $3,339,095
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</TABLE>
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first three months of 1997, total assets increased $72
million due primarily to proceeds from a reverse repurchase
agreement of $120 million and net of a decrease of $27 million in
net unrealized appreciation on investment securities classified as
available for sale. Accounts payable and accrued liabilities
increased $61 million due primarily to borrowings under the reverse
repurchase agreement and net of a decrease in payable for
securities purchased of $62 million. Certificate reserves
increased $30 million during the first quarter of 1997.
During the month of March 1997, Registrant tested its ability to
generate short-term financing in the marketplace by entering into a
reverse repurchase agreement with a major lender. Proceeds from
borrowings under the agreement were invested primarily in U.S.
Government Agency mortgage-backed securities. During the early
part of April 1997, the borrowings were fully repaid by the use of
available cash.
Sales of face-amount certificates totaled $268 million during the
first quarter of 1997 compared to $224 during the prior year's
period. The higher certificate sales resulted primarily from sales
of Preferred Investors certificates which were first offered for
sale early in the last quarter of 1996. Certificate maturities
and surrenders totaled $304 million during the first quarter of
1997 compared to $289 million during the comparable period in 1996.
Investment income decreased 8.6% during the first three months of
1997 from the prior year's period reflecting a lower average
balance of invested assets.
The 4.9% decrease in investment expenses resulted primarily from
lower investment advisory and services fee of $.4 million, and
lower amortization of interest rate caps/corridors and options of
$.3 million. The decrease in investment advisory and services fee
resulted primarily from a lower balance of invested assets on which
the fee is calculated. The decrease in amortization of interest
rate caps/corridors and options reflects the net of $1.1 million
higher amortization of options and $1.4 million lower amortization
of interest rate caps/corridors.
Net provision for certificate reserves decreased 19% during the
first three months of 1997 from the prior year's period reflecting
a lower average balance of certificate reserves, and lower accrual
rates primarily related to surrenders of the promotional 11-month
Flexible Savings certificate during the second quarter of 1996.
The $1.5 million decrease in income tax benefit on net investment
income resulted primarily from a lesser portion of net investment
income before income tax benefit being attributable to
tax-advantaged income.
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During the first three months of 1997, Registrant sold
held-to-maturity securities with an amortized cost and fair value
of $2.8 million and $2.4 million, respectively.
The sales were due to significant deterioration in the issuer's
creditworthiness. During the same period in 1997,
available-for-sale securities were sold with an amortized cost and
fair value of $97.5 million and $97.9 million, respectively.
Net certificate reserve financing activities used cash of $10
million during the first three months of 1997 compared to cash used
of $40 million during the prior year's period. The change resulted
primarily from higher certificate sales.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are incorporated herein by reference:
3. (a) Certificate of Incorporation, dated December 31, 1977,
filed electronically as Exhibit 3(a) to Post-Effective
Amendment No. 10 to Registration Statement No.
2-89507, is incorporated herein by reference.
(b) Certificate of Amendment, dated April 2, 1984, filed
electronically as Exhibit 3(b) to Post-Effective
Amendment No. 10 to Registration Statement No.
2-89507, is incorporated herein by reference.
(c) By-Laws, dated December 31, 1977, filed electronically
as Exhibit 3(c) to Post-Effective Amendment No. 10 to
Registration Statement No. 2-89507, is incorporated
herein by reference.
10. (a) The Distribution Agreement dated November 18, 1988,
between Registrant and IDS Financial Services Inc.,
filed electronically as Exhibit 1(a) to the
Registration Statement for the American Express
International Investment Certificate (now called the
IDS Investors Certificate), is incorporated herein by
reference.
(b) The Distribution Agreement dated March 29, 1996,
between Registrant and American Express Service
Corporation, filed electronically as Exhibit 1(b) to
Post-Effective Amendment No. 38 to Registration
Statement No. 2-55252 for the D-1 Investment
Certificate, is incorporated herein by reference.
(c) Selling Agent Agreement dated June 1, 1990, between
American Express Bank International and IDS Financial
Services Inc., for the IDS Investors and IDS Stock
Market Certificates, filed electronically as Exhibit
1(c) to the Post-Effective Amendment No. 5 to
Registration Statement No. 33-26844 for the IDS
Investors Certificate, is incorporated herein by
reference.
(d) Marketing Agreement dated October 10, 1991, between
Registrant and American Express Bank Ltd., filed
electronically as Exhibit 1(d) to the Post-Effective
Amendment No. 31 to Registration Statement No. 2-55252
for the Series D-1 Investment Certificate, is
incorporated herein by reference.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
---------------------------
(e) Letter Amendment dated January 9, 1997, to the
Marketing Agreement dated October 10, 1991, between
Registrant and American Express Bank Ltd., filed
electronically as Exhibit 10(j) to Post-Effective
Amendment No. 40 to Registration Statement No.
2-55252, is incorporated herein by reference.
(f) Amendment to the Selling Agent Agreement dated
December 12, 1994, between IDS Financial Services Inc.
and American Express Bank International, filed
electronically as Exhibit 16(d) to Post-Effective
Amendment No. 13 to Registration Statement No.
2-95577, is incorporated herein by reference.
(g) Selling Agent Agreement dated December 31, 1994,
between IDS Financial Services Inc. and Coutts & Co.
(USA) International, filed electronically as Exhibit
16(e) to Post-Effective Amendment No. 13 to
Registration Statement No. 2-95577, is incorporated
herein by reference.
(h) Consulting Agreement dated December 12, 1994, between
IDS Financial Services Inc. and American Express Bank
International, filed electronically as Exhibit 16(f)
to Post-Effective Amendment No. 13 to Registration
Statement No. 2-95577, is incorporated herein by
reference.
(i) Second amendment to Selling Agent Agreement between
American Express Financial Advisors Inc. and American
Express Bank International dated May 2, 1995, filed
electronically as Exhibit (1) to Registrant's June
30, 1995, Quarterly Report on Form 10-Q, is
incorporated herein by reference.
(j) The Investment Advisory and Services Agreement between
Registrant and IDS/American Express Inc. dated January
12, 1984, filed electronically as Exhibit 10(a) to
Registration Statement No. 2-89507, is incorporated
herein by reference.
(k) Depository and Custodial Agreement dated September 30,
1985, between IDS Certificate Company and IDS Trust
Company, filed electronically as Exhibit 10(b) to
Registrant's Post-Effective Amendment No. 3 to
Registration Statement No. 2-89507, is
incorporated herein by reference.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
---------------------------
(l) Foreign Deposit Agreement dated November 21, 1990,
between IDS Certificate Company and IDS Bank and
Trust, filed electronically as Exhibit 10(h) to
Post-Effective Amendment No. 5 to Registration
Statement No. 33-26844, is incorporated
herein by reference.
(m) Form of Letter Amendment dated April 7, 1997, to the
Selling Agent Agreement dated June 1, 1990, between
American Express Financial Advisors Inc. and American
Express Bank International, filed electronically as
Exhibit 10(j) to Post-Effective Amendment No. 14 to
Registration Statement No. 33-26844, is incorporated
herein by reference.
24. (a) Officers' Power of Attorney, dated May 17, 1994, filed
electronically as Exhibit 25(a) to Post-Effective
Amendment No. 37 to Registration Statement No.
2-55252, is incorporated herein by reference.
(b) Directors' Power of Attorney, dated February 29, 1996,
filed electronically as Exhibit 24(b) to
Post-Effective Amendment No. 39 to Registration
Statement No. 2-55252, is incorporated herein by
reference.
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT IDS CERTIFICATE COMPANY
BY
NAME AND TITLE Stuart A. Sedlacek, President
and Director (Principal
Executive Officer)
DATE May 14, 1997
BY
NAME AND TITLE Jay Hatlestad, Vice President
and Controller (Principal
Accounting Officer)
DATE May 14, 1997
